Wealth Management
There has been widespread adoption of separately managed accounts starting in the mid 2000s. The rationale for managing fixed income assets in this manner remains pertinent today: transparency, flexibility, transaction cost management, and active management are paramount in fixed-income investing.
SMAs offer tailored portfolio management to meet clients’ fixed-income objectives, including tax management, income production, and specific investment restrictions, setting them apart from pooled vehicles like mutual funds and ETFs. The growth in SMAs for fixed income has been remarkable, with assets in SMA municipal fixed-income investments expanding from $100 billion in 2008 to $718 billion by Q2 2023, according to Citi Research.
The advantages of SMAs, such as enhanced customization and efficiency, have fueled their increasing adoption by investors seeking precise control and personalized solutions in managing their fixed-income portfolios.
Finsum: Tailored financial products deliver a more personalized client experience and SMAs provide an avenue to improved relationships.
Raymond James conducted its annual survey of retired financial advisors to figure out how happy they are and the factors behind their responses. A consistent lesson is that succession planning is essential to feeling content in retirement.
Many advisors recommend getting immediately started with succession planning, even if it is many years down the road. An important step is to identify a successor who you believe can continue effectively serving your clients.
Some steps in this process include surveying your network to identify potential candidates, conducting interviews, and spending time with them to gauge if they are the right fit. It can also be helpful to get input from your firm’s management team.
Once you’ve identified a successor, the next step is to inform your clients. In the survey, 74% of advisors mentioned that communicating with clients was important in preparing for retirement. While these conversations can be initially awkward and uncomfortable, they will ultimately deepen the client-advisor relationship and increase the odds of a successful transition for your clients.
The final step is getting mentally and psychologically prepared for retirement. This can mean planning the final stage of their career, whether it means an immediate exit, a transition period, or a consulting role. Retiring advisors have considerable experience and wisdom that they can still share with their successors, especially during stressful situations.
Finsum: Raymond James conducts an annual survey of retired advisors to find out how many are happy and why. One of the major takeaways is the importance of proactive and effective succession planning.
Emerging market assets often witness significant yet brief fluctuations around Election Day, with their performance linked to the electoral outcome. Historical data suggests that emerging market assets fare better during periods of a unified US government or with a Democratic president. However, this data is limited, spanning only eight presidential election cycles.
To gauge this year's potential impact on emerging markets, it's crucial to analyze key channels of influence, including changes in US macroeconomic variables, trade policy, and geopolitics. The outcome of the US election could significantly affect these factors, influencing emerging market assets. Trump's presidency might lead to faster US economic growth but increase uncertainty in trade and geopolitics, while a Biden presidency could maintain the status quo.
Despite political considerations, long-term portfolio construction should remain impartial, with emerging market assets playing a pivotal role due to their diversification benefits and potential for higher returns.
Finsum: Don’t let political biases crowd out your investment decisions.
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Goldman Sachs Asset Management (GSAM) is aiming to become one of the top 5 providers of model portfolios. Currently, GSAM is the ninth largest in terms of asset managers, with model portfolio assets of $14.5 billion. Over the next decade, model portfolios are projected to have more than $11 trillion in assets in total.
According to Alexandra Wilson-Elizondo, the co-CIO of GSAM’s multi-asset solutions group, the firm’s strategy is to outgrow its competitors rather than take existing market share as model portfolio assets are projected to grow 20% annually. Model portfolios consist of off-the-shelf strategies and custom models. Demand for the latter has been robust among wealthy clients.
Increasing adoption by financial advisors is the primary growth driver for the category. By decreasing time and resources spent on investment management, advisors can add more value in areas like client service, tax planning, and estate management.
Currently, the leading provider of model portfolios among asset managers is Blackrock, followed by Wilshire Associates, Capital Group, and Vanguard. In 2019, GSAM bought S&P Global Market Intelligence, and it acquired NextCapital Group in 2022 to build the foundations of its model portfolio business.
Finsum: Goldman Sachs is aiming to grow its model portfolio segment and become a top-five provider among asset managers. Forecasts are for the category to grow 20% annually and exceed $11 trillion by 2030.
There is a momentous demographic turnover that reshapes the financial advisor landscape. According to Cerulli, nearly 40% of advisors will be retiring in the next decade. Currently, 60% of assets are managed by advisors who are 55 and older, while the average age of an advisor is 50.
This reality means that older advisors need to start thinking about succession planning. Proactive and proper succession planning can also help advisors maximize the value of their practice and ensure that their clients remain in good hands. Younger advisors should be formulating a strategy to capitalize on this opportunity.
Some key elements to successfully transition to the next generation are recruiting to replenish talent, appealing to younger investors, and scaling engagement and client service by leveraging technology.
At current rates, there are not enough new advisors to offset retirements and attrition. Therefore, it’s imperative that practices invest in recruitment efforts to identify talent and set them up for success. This entails looking at recruits from nontraditional backgrounds who have strong people and organizational skills.
Another important step is to gear prospecting and client service for millennials and Generation Z. This means understanding their perspective and becoming fluent with technology. Finally, advisors should be investing in technology that can help them scale personalized service to increase their capabilities and serve more clients.
Finsum: Succession planning will be even more critical in the coming decade due to the massive retirement wave in the financial advice industry. Here are some common elements of successful succession planning.
Forget active versus passive investing, the future is about having both, but with a twist: direct indexing. This strategy combines the low fees and market tracking of passive investing with the tax benefits and customization often desired by active investors.
Direct indexing lets you build a portfolio that mimics a market index, like the S&P 500, but with a twist. You can personalize it to minimize your tax bill through tax-loss harvesting, a strategy that sells losing investments to offset capital gains and lower your taxes. This can potentially lead to significant savings compared to traditional index funds, and research shows the alpha can be as high as 1%.
Technology plays a key role in direct indexing. It allows advisors to tailor the portfolio to your specific needs and tax situation, while still ensuring it closely tracks the chosen index. This level of customization combined with the potential for tax savings is fueling the growth of direct indexing, particularly within separately managed accounts.
Finsum: While active bonds may have an advantage, the semi-passive direct indexing offers advantageous tax alpha.